Gilmore tells leaders of 'urgent' need for deal with ECB on debt

Tánaiste Eamon Gilmore has warned of “a potentially catastrophic effect” on Ireland if the country is unable to renegotiate the terms of the promissory note from the European Central Bank used to stabilise Anglo Irish Bank and Irish Nationwide in 2010.

In a significant escalation of the Government’s rhetoric in its campaign to renegotiate the country’s bank debt, Mr Gilmore told today’s gathering of EU and Latin American leaders meeting in Santiago that Ireland’s expected exit from the bailout programme this year was dependent on sealing an agreement to lower the country’s debt burden.

Speaking before an audience which included German Chancellor Angela Merkel, the Tánaiste said that by “shouldering a great burden of debt” Ireland had “shown solidarity with Europe when the risk of contagion was high” and a deal on lowering the burden now required “a greater reliance on that solidarity that underpins the Union”.

The Government is negotiating to have the life of the 10-year €30.6 billion promissory note from the ECB extended in order to reduce the €3.1 billion annual repayments, the next of which falls due at the end of March.

Asked what the “catastrophic” effect of a failure to renegotiate the promissory note might be, Mr Gilmore told The Irish Times that financial markets “have already factored in” a debt deal for Ireland.

“Clearly if that were not to be concluded that would have a market consequence,” he warned.

Mr Gilmore said a deal on the country’s debt also had to include Dublin’s request to have the recapitalisations of AIB and Bank of Ireland retroactively funded by the European Stability Mechanism (ESM), adding that a deal on the promissory note alone would be insufficient.

“It is not an either or here,” he said. “We are determined to get both issued resolved. We have never posited one against the other.”

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He also denied that the government was considering the option of a new loan from the IMF should it fail to reach agreement with the ECB and Ireland’s EU partners on the promissory note and including legacy assets in the ESM.

“We are not contemplating a loan with the IMF. The discussions that are taking place with the IMF are about exit from the programme and about post-programme Ireland. Our intention is to exit the programme.

“We are determined to do this. But concluding an agreement on the promissory note is very much part and parcel of that.”

As well as today’s speech Mr Gilmore argued the government’s case during a number of bilateral meetings with EU leaders during the summit. Among those he held talks with were Ms Merkel and France’s prime minister Jean-Marc Ayrault.

The Tánaiste said he believed Ireland’s diplomatic efforts are winning its EU partners around to the country’s request for a debt deal.

One of the key meetings over the weekend was with Finnish prime minister Jyrki Katainen, a leading European sceptic of having the recapitalisations of AIB and Bank of Ireland retroactively funded by the ESM.

It is understood the Tánaiste used the meeting to seek to assuage Finnish concerns that the Irish request for retroactive funding from the ESM risked exhausting its funds.

A Finnish official said his government hugely admired Ireland’s handling of its crisis but it wanted to avoid applying ESM funds in such a way that depleted them to the point where governments were asked to inject more capital, a requirement the Finnish government believes would be politically very difficult to achieve in a number of European countries.

Finland is worried that a failure to secure the ESM’s credibility in financial markets could risk undermining the Eurozone’s banking union due to come into effect next year.

But the Irish side is understood to have argued that it is in a unique position having already identified the amount of capital required to recapitalise AIB and Bank of Ireland and believes it is not of a scale that would deplete the ESM.

Both sides indicated that with no final decision yet taken discussions will be on-going before the June deadline for finalising the scope of the ESM.

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